German Business Indicator Falls in March

DAVID McHUGH

Published 7:00 pm, Tuesday, March 25, 2003

AP Business Writer

A closely watched indicator of German business sentiment fell in March after two months of increases, raising a question mark over hopes for a recovery in Europe's largest economy, the institute that carries out the survey said Wednesday.

The Ifo institute's business climate index dropped to 88.1 from 88.9 in February. The decline meant that "the indications of the past two months for a turnaround in the business climate for Germany have not yet been confirmed," an Ifo statement said.

The institute says it takes three straight months of movement in one direction to establish a trend.

The March result "means we didn't get a signal that many have expected that we have reached the low turning point," said survey director Gernot Nerb. "It's not dramatic, but we have to live with some uncertainty about when the recovery will start."

The index, based on a survey of 7,000 business executives in western Germany, is a leading indicator, suggesting where the economy might be going in the months ahead.

Some economists expect the German economy, which grew by just 0.2 percent last year, to pick up speed in the second half of the year. Amid the economic weakness, unemployment is running at more than 11 percent.

At a news conference later Wednesday, Chancellor Gerhard Schroeder played down the decline in business sentiment.

"Of course the current situation is marked by the war in Iraq," he said. "The question of whether we will have a sustained economic recovery in the second half certainly will also depend on the question of how long the war in Iraq lasts."

However, about three-quarters of the data for Ifo's March index already had been collected by the time the war started last week, and survey director Nerb said that the data from after the war began did not show a significant difference from those collected before.

Retailing and construction, two sectors that have seen tough times in Germany recently, both registered increased optimism in March, but manufacturing and wholesaling showed declines, Ifo said.

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The institute so far has forecast economic growth of 0.9 percent in Germany this year, while the government predicts 1 percent. Nerb said Ifo and other leading institutes will release a new growth estimate on April 15.